One of the most destructive consequences of the Federal Reserve bailing out banks, equityholders and capital markets in the aftermath of the GFC with a coordinated multi-trillion liquidity injection by the world central banks that made the rich richer and the poor poorer while crushing the middle class, has been an unprecedented growth in income and wealth inequality, the backlash to which were such historic events as Brexit in the UK and the completely unexpected – by the “experts” – election of Donald J. Trump, in the United States.
Of course, when it comes to income inequality among American households, outcomes have varied widely across the 50 U.S. states. The impact of international competition gets a lot of the blame, along with automation, in states that have fared the worst. That has contributed to a backlash against free trade on the national level, resulting in the current multi-front trade war wages by the administration.
But in which states has income polarization been most acute and where has the middle class been crushed the most?
For an answer, we look at a recent study by the IMF, “Hollowing Out: The Channels of Income Polarization in the United States“, which shows that middle-income households have shrunk as a proportion of the population since the 1960s. The study found that those earning between 50 percent and 150 percent of the median income represented just 48 percent of total households in 2016, compared with 58 percent in 1968; in other words for better or worse, the middle class has shrunk.
Unfortunately, it’s for the “worse” and as the IMF writes, a majority of households “left” the middle class not because they became richer; on the contrary. Of those families leaving the middle-income group, the proportion falling into the low-income ranks, which the IMF describes as downward hollowing out or polarization, was greater than those advancing to upper income levels. And as noted above, the 50 states haven’t felt these effects uniformly.
To find where this “Hollowing-Out” was most acute at the state level, the IMF created indices for each of the states for 2000-2016 to highlight these differences. The chart below, breaks down the 50 U.S. states and the District of Columbia into three groups, based on how severely their middle class has experienced downward income hollowing out during 2000-2016.
The states shown below in deep red are where Income polarization, and the hollowing out of the middle class, was most severe; logically the lighter the shading, the less the adverse impact of “downward hollowing out.”
Commenting on its findings, the IMF noted the following:
Take Nevada and Arkansas, for example, two states that had the greatest increase in polarization during 2000-2016. In these states, education played only a small countervailing role as technology and international trade lowered living standards for some middle-income households.
On the other extreme, take for example, Massachusetts and New Mexico. Technology and international competition have had less impact on income polarization in these two states than in Nevada and Arkansas. Meanwhile, education has done more to keep households in the middle class, making Massachusetts and New Mexico among the states that have experienced the smallest increases in income polarization during 2000-2016.
The IMF’s surprising conclusion is that while “technological progress and globalization have had positive effects, generating higher living standards, more productivity and faster growth”, something which an institution that is at the forefront of enabling globalization would have no choice but to say, the IMF also, unexpectedly admits, that “our work shows that they also have had important, and sometimes detrimental, side-effects on income distribution and household welfare.” The bolded text is problematic for the globalists, because once you’ve lost the IMF, you better make sure that there are real crocodiles in that moat separating your castle from the peasants.
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